Petrobras signs strategic alliance with China's Sinopec

Petroleo Brasileiro SA (Petrobras), Brazil's state-owned oil company, and China Petroleum & Chemical Corp. (Sinopec), have inked a strategic cooperation agreement centered around partnerships in oil exploration, production, refining, oil products sales, petrochemicals, pipeline engineering services, and technical cooperation, João Figueira, general manager of Petrobras's international department, told OGJ.

"Petrobras and Sinopec will now begin to identify and evaluate opportunities for joint development; thus, projects and investment values have not yet been defined," Figueira noted. The agreement will focus on Brazil but will cover other parts of the world as well, including Latin America, West Africa, and the Middle East.

The agreement was signed during Brazilian President Luis Inacio Lula da Silva's trip to China in late May and is aimed at boosting exports to Asia's fastest-growing economy, a move that could help Brazil's struggling economy.

Petrobras in Beijing

Lula opened the Beijing office of Petrobras May 22. "The cooperation between China and Brazil has started on a promising new page, and Petrobras is playing a very important role in this strategic partnership," Lula said to a presentation audience of about 100—mostly Brazilian and Chinese business leaders.

Sinopec, as well as other Chinese state oil companies, has cast its eye on overseas exploration and production since 2000 in order to overcome the effect of limited domestic resources and fulfill China's growing demand for oil products. South America is listed along with Southeast Asia, the Middle East, and West Africa as areas of strategic importance for Sinopec, and much progress has already been made in Peru and Venezuela.

Petrobras Pres. José Eduardo Dutra told Brazilian reporters in China that Sinopec is interested in investing in a gas pipeline that will link Rio de Janeiro state to the northeastern state of Bahia via Espirito Santo state.

Dutra also began negotiations with China National Offshore Oil Co. (CNOOC) to explore for crude oil in China's deep water. "Technicians of the two companies will prepare a memorandum of understanding for deepwater exploration and production in China and Brazil, both in partnership with Petrobras."

Petrobras and Sinopec will work together in Ecuador where the Brazilian company has two blocks. Both companies also will join efforts in Iran where Petrobras recently signed an E&P contract.

Dutra said that, "several foreign companies, including [those in] China, are interested in exploring [for more of] the natural gas discovered last year in the Santos basin [off Brazil]. This includes the building of an LNG [export plant] in partnership with Petrobras. However, this is still at a preliminary stage. Our priority is to supply the domestic market. But if there is surplus gas and the price is right, we may implement the LNG plant for export."

China's Brazilian imports

According to Petrobras, Sinopec signed a contract to import 14 million bbl of heavy crude from Brazil this year. Last year Brazil exported 5 million bbl of crude to China.

The deal will deepen steadily expanding trade between China and Brazil that reached around $8 billion in 2003.

Petrobras exports heavy crude and imports light oil to process at its refineries and to produce better-quality oil products, because Petrobras refineries were built to process light oil, while the majority of Brazil's production is heavy crude. China's oil majors—Sinopec, CNOOC, and China National Petroleum Corp., the parent of Petro- China—are all scouring the world for oil resources to feed China's soaring demand.

Analysts say that China is expected to become the world's second largest oil importer, after the US, this year.

Its imports—60% of its oil needs mostly coming from the Middle East—are expected to rise sharply over the next few years as domestic supplies dwindle. China overtook Japan last year to become the second biggest consumer after the US. This year, the International Energy Agency expects China's consumption to rise almost 14%, or 750,000 b/d, to 6.24 million b/d. Some predict growth could be as high as 1 million b/d in 2004 and annually for the next 2-3 years.

Alternative vehicle fuels

With an eye on Chinese goals for reducing pollution—an inevitable side effect of frenetic economic growth—the Brazilian mission accompanying Lula took along a "flexfuel" automobile, which can be powered by either alcohol, gasoline, or both, built with Brazilian technology. The idea is to close deals for supplying China with fuel alcohol, besides the equipment.

Brazilian Mines and Energy Minister Dilma Roussef said, "China has shown great interest in the biodiesel sector. The idea is for the Chinese to purchase castor oil from Brazil." Rousseff also said that, Sinopec had committed itself to participate in Brazil's sixth licensing round in partnership with Petrobras. The licensing round organized by the National Petroleum Agency is scheduled for August.

Minister of Development, Industry and Foreign Trade, Luiz Fernando Furlan estimated Chinese investment in Brazil in the next few years could reach $5 billion, mainly in infrastructure development such as gas pipelines port facilities and railways.